Should I Stay or Should I Go: Supreme Court to Consider Whether Federal Courts Can Dismiss or Must Stay Cases Pending Arbitration

On January 12, 2024, the U.S. Supreme Court granted certiorari in Smith, et al. v. Spizzirri, et al., No. 22-1218 to consider whether a district court must stay a case — rather than dismiss it — when presented with an enforceable arbitration agreement. The Court’s review will likely resolve a split among the U.S. Circuit Courts of Appeal on this issue.

In Spizzirri, a group of delivery driver plaintiffs sued their employer in an Arizona state court, alleging numerous violations of state and federal employment laws. After the defendant removed the case to federal court, it sought to compel arbitration and dismiss the lawsuit altogether. The parties ultimately agreed that all claims under the lawsuit were subject to arbitration. Plaintiffs, however, strongly opposed dismissal of their suit and argued that the matter must be stayed according to the plain language of Section 3 of the Federal Arbitration Act (FAA). Section 3 provides that, if an issue is subject to arbitration, the court “shall on application of one of the parties stay the trial of the action until such arbitration has been had in accordance with the terms of the agreement . . . ” 9 U.S.C.A. § 3 (emphasis added). Despite this language, the District Court for the District of Arizona dismissed the Plaintiffs’ lawsuit.

On appeal, a panel for the Ninth Circuit considered “whether the [FAA] requires a district court to stay a lawsuit pending arbitration, or whether a district court has discretion to dismiss when all claims are subject to arbitration” and affirmed the dismissal. The Ninth Circuit evaluated the split in authority within the Circuit Courts of Appeal. The First, Fifth, and Eighth Circuits follow the minority view and have ruled that the FAA affords district courts the discretion to dismiss, rather than stay, lawsuits pending arbitration. The majority approach, followed by the Second, Third, Sixth, Seventh, Tenth, and Eleventh Circuits, requires district courts to stay a case when presented with a valid arbitration agreement. The Ninth Circuit ultimately sided with the minority view.

The Supreme Court’s decision will impact strategic choices and procedures surrounding arbitration. When a case is stayed pending arbitration, rather than dismissed, there is no immediate right to appeal the order compelling arbitration. Unless a discretionary appeal is permitted, the party seeking to challenge the order compelling arbitration generally must wait until the arbitration is resolved. In contrast, a dismissal is a final decision subject to immediate appeal. As some appellate courts have recognized, a stay (compared to a dismissal) more effectively transitions arbitrable claims out of federal litigation. An immediate appeal, when exercised, can delay arbitration, increase litigation costs, and promote gamesmanship. These run counter to the legislative purpose of the FAA, which was enacted in response to the delay and expense of litigation. A dismissal also divests federal courts of jurisdiction to confirm or vacate an award, forcing prevailing parties to instead pursue enforcement in state courts, which can be tedious and require additional costs that would otherwise be avoided.

With this granting of cert in Spizzirri, the Supreme Court signals its continued interest in arbitration-related issues. Spizzirri marks the thirdFAA-related case the Supreme Court will hear this term alone, with the Court having considered several petitions for arbitration-related issues over the past several years. This term, the Supreme Court will also evaluate the FAA’s exemption for transportation workers in Bissonnette v. LePage Bakeries Park St., LLC, and whether a court or an arbitrator should decide certain arbitration issues in Coinbase, Inc. v. Suski. Oral arguments in Spizzirri are scheduled for April 22, 2024. Subscribe to Foley’s Consumer Class Defense Counsel blog to stay current on these and related developments impacting arbitration considerations.